Will Smaller Capital Budgets Mean Fewer Jobs?

During the recession, Alaska lawmakers spent record amounts on infrastructure as a way of putting people to work. They even went as far as calling their capital budgets “job bills.”

But with less tax money coming in, the days of fat capital budgets are coming to an end. Should Alaskans be worried about what that means for the state unemployment rate? APRN’s Alexandra Gutierrez reports.

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Just last year, the state spent $2 billion on capital projects. There was money for ski clubs, shooting ranges, climbing walls, and theaters, on top of all the bread-and-butter stuff, like bridges and harbors.

The FY2015 capital budget that Gov. Sean Parnell proposed last week is not quite so ample. It would bring state spending down to about half a billion dollars. With the state expecting a drop in revenue, there’s simply less money to go around. Even Parnell’s critics, like Sen. Bill Wielechowski, understand where the governor was coming from on this.

“You have a deficit of billions of dollars, and so where are you going to cut? And that’s probably the easiest place to start cutting.”

Just because Wielechowski gets the reason for the cut doesn’t mean he’s comfortable with its potential impact. Earlier this year, he asked the Legislature’s research department to figure out what effect capital spending has on Alaska’s economy. An Anchorage Democrat, Wielechowski has been supportive of higher taxes on oil, and he wanted to find out just how many jobs the capital budget created under the previous revenue system. The report’s conclusion?

“You can look at these numbers and see we created 15,000 to 25,000 jobs per year every year,” says Wielechowski.

Using numbers from the state’s Institute of Social and Economic Research, every million dollars spent on infrastructure supports eight to 12 jobs. That counts people who are directly employed by the project and it counts people who are simply benefitting from the extra money circulating in the economy. Retailers, restaurant workers … really anyone who sells goods or services to the construction crew.

Legislative Research Services estimates that 25,000 jobs were created in FY2013, when state capital spending was at its $2 billion peak. This fiscal year, the state reduced the capital budget to $800 million, and the employment impact is estimated at less than 15,000. Based on ISER’s multiplier, next year’s capital budget would support between 5,000 and 7,000 jobs if the state ends up spending the amount proposed by Parnell. Even if legislators appropriate hundreds of million of dollars more for their own projects, the employment impact will still be low compared to recent years.

Wielechowski says that finding work could be harder for all those extra people who benefitted from bigger capital budgets in the past.

“The job that you don’t create is harder to quantify,” says Wielechowski. “You know, you don’t have someone out there whose job you’re cutting.”

And here’s where things get a little more complicated. You can say capital spending creates jobs, but that doesn’t necessarily guarantee unemployment will go up just because the state’s spending less on infrastructure projects.

Neal Fried tracks employment trends for the Department of Labor. He says Alaska’s job market has been steady for a while, and the construction industry has been “fairly stable.”

“Employment has not fluctuated very much year-to-year for at least four or five years,” says Fried.

What changes is who pays for it.

“Some years it’s very little private, but a lot more federal. And some years, there’s a lot more oil-related construction,” says Fried.

Already, the state is expecting the federal government to pick up some of the slack on infrastructure projects. Parnell’s proposed budget authorizes more than a billion dollars in federal spending, which is an increase over last year.

The governor also expects development on the North Slope to buoy the employment rate. Regardless of whether it’s because of the new oil tax regime or it’s because they’re finally making good on projects that have long been in the works, companies like BP and ConocoPhillips are ramping up their spending. This month, Conoco announced that it would be increasing its capital spending by more than half, to $1.6 billion.

Fried says we’re also seeing more activity in the retail sector, with stores like REI coming to Fairbanks and a certain donut shop opening in Anchorage.

“Krispy Kreme certainly wouldn’t have made that decision in 2008 or 2009,” says Fried. “A lot of these places would have ever thought about opening up new stores or restaurants or, you know, other kinds of operations during the middle of the recession.”

There’s one more big source of money that could keep employment up. Fried says the capital budgets of past years could actually end up offsetting smaller capital budgets in the future.

“These dollars — especially the public dollars whether they’re federal- or state-related public dollars — they take a long time very often to be spent,” says Fried. “So, there’s a lot of money that was allocated two, three, four years ago that will just start getting spent, or will start being turned into brick and mortar now.”

Even if this year’s budget is a little lean, there’s still lots of capital money left from previous budgets available for construction. During his budget rollout, Parnell said that there was still $5 billion in old capital appropriations that hadn’t hit the streets.

Early estimates from the Office of Management and Budget suggest there could be even more, with $6.3 available for approved projects and another $5.2 encumbered for work yet to be done on specific projects.